Nearly every venture capital shop active in the Indian market right now is spending considerable time cleaning out its portfolio. Non-performers are being weeded out and available capital is being kept in reserve either for the winners or for new investments. None, though, has been as visible with a clean-up drive as Sequoia Capital, the largest in the market in terms of funds under management.
In February, Sequoia raised a reported $920 million in commitments for its latest India-focused fund, taking its total India-dedicated capital under management to more than $3 billion. The money isn’t headed anywhere in a hurry, at least not just yet. Instead, much like its peers, the firm has been busy cleaning up—or rather, consolidating—its existing portfolio of investments. And, its most preferred strategy for doing so has been the business model pivot (or change).
The pivot-and-consolidate strategy has played out more frequently over the past couple of months. Last month, Mint reported that Bengaluru-based Coraza Technologies Pvt. Ltd, which owns personal assistance app HelpChat, had shuttered its chat services. Talking about the future, Ankur Singla, the company’s founder and chief executive, wrote on his personal blog about the launch a series of new services such as recharge, bill payments, cab booking and deals, and promised many more over the next three months. This is HelpChat’s second pivot in less than a year. Last July, it switched from an online forum for legal services to the chat-based assistance model. This was a couple of months after it raised a $16 million Series B round of funding led by Sequoia. In all, the venture capital firm has more than $21 million invested in the company.
In April, Gurgaon-based PepperTap shut down its grocery delivery services and decided instead to focus on growing its existing logistics business. The start-up had last raised a $36 million Series B funding round led by Snapdeal, Sequoia and SAIF Partners. Sequoia had seed-funded the start-up with $1.2 million in February last year and followed with a $10 million Series A round in April, along with SAIF. TinyOwl, the troubled Mumbai-based food-ordering service that tried to pivot to a home-chef aggregation model in a bid to raise more capital, is in the process of being merged with Roadrunnr, a hyperlocal delivery service based in Bengaluru.
Mint reported early last month that Sequoia and Nexus Venture Partners, common investors in both TinyOwl and Roadrunnr, played an active role in pushing through the deal. Faasos, another Sequoia portfolio company, is also in the middle of tweaking its business model, again. After moving into the home chefs aggregation model last year, the Mumbai-based company, which started as a quick service restaurant chain, is now tying up with restaurants to expand its menu, The Economic Times reported in April.
Some folks have knocked pivots as being a convenient way to mask failed business models. Do pivots imply that a business model has failed? Probably. Do they offer a young start-up the chance to live another day? Definitely. The more venture capitalists apply pivots as a strategy to salvage businesses that have lost their way, the better the outcomes for both entrepreneurs and investors.
Not all of Sequoia’s consolidation moves in recent months have involved pivots. For instance, early last month, reports suggested that Ahmedabad-based apparel maker Arvind Ltd may be interested in buying fashion e-commerce company Freecultr. Sequoia entered Freecultr in 2011 with a $4 million investment and followed on later with a $9 million round with participation from Ru-net. Sell-offs are one way it is consolidating. The other is by getting companies to cut back on costs and right-size operations.
In January, for example, Grofers, billed India’s most-funded hyperlocal delivery services start-up, shut operations in nine cities, chiefly in the Tier II category. The company’s co-founder Albinder Dhindsa told Mint the decision was driven by the low acceptance of Grofers’ services in those cities. In December, Grabhouse, a property search and listings platform, laid off 100 employees as part of a business restructuring exercise.
Sequoia, as mentioned earlier, isn’t the only venture capital firm that has employed pivots and other methods lately to consolidate investments. But, as the largest in the market, its moves serve as a sort of rough template on how consolidation is being driven within venture capital portfolios. By most accounts, the intensity of the ongoing consolidation will only grow over the next couple of quarters.
Snigdha Sengupta is the founder of StartupCentral, a digital news and analytics platform focused on venture capital. She also periodically contributes stories on venture capital and private equity to Mint.